# Liquidation & No ADLs
## General
The portfolio becomes eligible for liquidation when the **available margin in an account reaches 0.**
After liquidation, the account is reset to hold only a **USDM balance** and **no open positions**.
## Liquidation Process
* **Any participant** may act as a liquidator.
* The liquidation function is **public**, but the process is **pre-determined by smart contracts**.
* Liquidators cannot arbitrarily decide liquidation steps.
* Orders are placed on the order book as market orders for the **full size of each position**, at prices required to fully execute given current depth.
* In volatile markets, liquidations may result in **additional losses** for the account holder due to thin market depth.
* **All liquidations are full liquidations. A full liquidation means that all positions are unwound and all balances are sold for USDM. All orders during liquidation are taker orders.**
## Liquidator Fees & Rewards
* Liquidators receive a **reward of up to 1%** of the post-liquidation portfolio value.
* Rewards are **held in escrow for 24 hours**.
* The exchange administrator may **revert rewards to the original owner** if malfeasance (e.g., manipulation) is detected.
* At launch, **World operates the liquidator**. After launch, the liquidation function will be publicized, enabling **anyone to liquidate**.
## Loans
* A user who borrows, and does not pay their interest on time, will trigger an automatic borrow and interest payment forced by the liquidation engine. The other positions in the portfolio will not be unwound, unless the interest payment on the new loan brings the available margin to 0.
#### How does World manage a lender getting liquidated?
* Let's say an account has lent 100 ETH and this account gets liquidated (due to some other position). Under normal conditions, the liquidation engine will source another lender (or lenders) from the order book, matching the newly sourced lender with the original lender's borrowing counterparty. The original lender in liquidation pays the difference in interest rates.
## No ADLs: Bankruptcy Liquidations
* World does not have ADLs. It is the organization's view that the exchange should never take over a user's position outside of liquidation. Allowing the venue to unwind your position outside of liquidation causes the venue to behave more like a casino and less like an exchange. We believe most CEXs operate internal trading desks which trade against their clients, and use ADLs to arbitrarily unwind your positions, at their profit and your loss. Importantly, ADLs are not a feature of any major exchange in any major asset class outside of crypto.
* It is still possible on World that your counterparty loses money so fast they are unable to pay you during an extreme market move. This could happen if the variance in price and/or liquidity for the market(s) of your position(s) was not sufficiently captured by World's [risk parameters](/essentials/risk-parameters-and-stats.md),[ stored onchain](https://world.inc/#/exchange).
* If this happens, a portfolio, i.e. your counterparty, may become **"bankrupt"**.
* Bankruptcies, where one party is unable to pay their creditors in full, are always **bilateral**. Meaning, if User A is the only counterparty to User B, and User B goes bankrupt, User B will pay User A all of its assets in [Denomination: USDM](/venue/denomination-usdm.md) and User A will lose the remaining unrealized PnL. The loss is not socialized or extended beyond direct counterparties of User B.
* Importantly, users of World have some discretion over who they chose as counterparties, as all contracts are bilateral. If you perceive World's [Risk Parameters & Stats](/essentials/risk-parameters-and-stats.md) to be too aggressive for an asset, you can avoid counterparties with exposure to that asset.
* If you click "Details", you can see the counterparties of your Perp position.
It looks like this:
For Loans, go to the Positions tab:
* When processing a bankruptcy, at this stage:
* No liquidator bounty is paid (funds go to counterparties).
* The **exchange operator** executes a special liquidation with **bankruptcy commands**:
* **Close loan with partial payment**
* **Close perp position with partial payment**
* Counterparties take a **loss**.
* The operator charges **no fees** for this process.
ℹ️ The operator is incentivized to set **risk parameters** such that bankruptcies are extremely rare.
This is different from how CEXs work, which can unwind your positions at their discretion. On World:
* You always know your counterparty risk, because the risk parameters and your counterparties positions are onchain.
* If you don't like your counterparty risk, you can swap your counterparty.
* Liquidation is triggered based on verifiable, onchain risk parameters.
* The exchange never touches your positions except during liquidations.
* Counterparty losses are bilateral, they are not socialized across unrelated users.
## Liquidation Safeguards
To prevent abuse, liquidators face strict rules. These rules and specific values are subject to change.
* ❌ **No limit orders** allowed
* Only `fill or revert` and `fill partial, kill rest` order types are permitted
* ❌ **No lending orders** during liquidation
* ✅ May **borrow up to the amount lent**
* ✅ Borrow interest rate capped at **50%**
* **Designed to prevent lenders from losing more than 2% of their lent funds**, subject to other disclosed risks in Counterparty Risk section
* ✅ Order prices restricted to **±4 × riskSlippage** from the mark price
* ✅ Spot buys limited to **borrowed amount + 4%** (to cover fees/interest)
* ✅ Spot sells allowed **only after all borrows are repaid**
* ✅ Perp trades may **only reduce existing positions**
---
# Agent Instructions: Querying This Documentation
If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.
Perform an HTTP GET request on the current page URL with the `ask` query parameter:
```
GET https://docs.world.inc/essentials/liquidation-and-no-adls.md?ask=
```
The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.
Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.